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Precious stones massively underperform precious metal prices

By: Peter Cooper, Arabian Money

-- Posted Sunday, 5 February 2012 | | Disqus

Diamonds are not an investor’s best friend. The chart below gives a picture of price movements over the past five years.

You can see that diamond prices are up 20-40 per cent from the lows of 2009 – a low that lasted more than two years – but compare that to gold and silver over the same period.

Silver fell as low as $8.50 in the global financial crisis and is $33 today, up almost 400 per cent (and it was up 600 per cent last April). Gold has more than trebled in price. Moreover both precious metals rebounded in value much faster than precious stones in 2009.

Portable asset

There are other advantages to diamonds as a store of wealth. They are far more valuable per ounce than gold or silver, so for carrying a hundred million dollars around your person diamonds are an excellent choice.

Then again they are harder to value being of different sizes, cuts and quality. You could say a dealer might find it easier to cheat you, we would not comment on that.

All the same in a global flight to hard assets we would expect diamonds to prove a reasonable hedge against inflation over time. So it would be better to stash diamonds rather than cash under your bed.

Contrarian analysis

On the other hand, you might take a contrarian view. You could argue that gold and silver prices are in a bubble and diamonds are not, and therefore make a safer choice of asset class.

Or you could see the price performance gap between precious metals and precious stones as an arbitrage opportunity. For surely precious stones have a big gap in price performance to make up with gold and silver.

Buying the ultimate in hard assets at what looks to be a depressed price? Diamonds might be your best friend after all.

-- Posted Sunday, 5 February 2012 | Digg This Article | Source:

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About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link


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